Antitrust Conspiracies in Franchise Systems
After American Needle
Barry M. Block & Matthew D. Ridings
S
uccessful franchise systems
require extensive collaboration between the franchisor
and its franchisees and among
franchisees themselves. Some of
these collaborative activities have
successfully been challenged as
contracts, combinations, or conspiracies in restraint of trade in
violation of basic antitrust law
stated in Section 1 of the SherBarry M. Block
man Act.1 Certain organizations, such as sports leagues or
franchise systems, have argued,
sometimes successfully, that their
collaborative activities should
not be subject to Section 1 challenges. Their argument is that
the league or a franchise system
should be regarded as a “single
economic enterprise” and thus
“incapable of conspiring within
the meaning of [Section] 1.”2
The U.S. Supreme Court’s
Matthew D. Ridings
May 2010 decision of American
Needle, Inc. v. National Football League3 rejected single economic enterprise treatment for certain licensing activities of
the National Football League. This article considers whether
franchise systems may still be treated as single economic enterprises incapable of conspiring in light of the American Needle
decision and, if so, how franchise system activities should
be evaluated under the single economic enterprise theory as
compared to more traditional modes of antitrust analysis.
A Primer in Antitrust Law
Section 1 of the Sherman Act prohibits contracts, combinations, or conspiracies in restraint of trade.4 A contract,
combination, or conspiracy (sometimes referred to as an
“agreement”) is a requirement for a violation of Section 1.
If two companies offer to sell their competing products or
services at the same price, there is no violation as long as the
competitors set their prices independently, i.e., without an
agreement. If the competitors set their prices based on an
agreement, there is a clear violation of the antitrust laws,
which could subject the companies (and those who reached
Barry M. Block is a partner with Thompson Hine LLP in Dayton.
Matthew D. Ridings is an associate with the firm in Cleveland.
the agreement) to both criminal penalties and civil liability.
The courts have interpreted restraint of trade to mean
“unreasonable” restraint of trade.5 For instance, a contract
to sell certain goods at a certain price restrains trade: the
seller is restrained from selling the products covered by the
contract at a different price. But that would not be illegal.
Some restraints of trade are regarded as so clearly unreasonable that they are illegal per se, i.e., illegal without the
need to consider the actual impact on competition. Other
restraints are judged under the rule of reason, which means
that the restraint may be legal or illegal depending upon its
actual effect on competition.
Does an Agreement Exist?
Whether there is an agreement and whether it is illegal under
Section 1 depends on a variety of factors. One of these factors is whether the alleged agreement is between parties with
a horizontal or a vertical relationship. A horizontal agreement is an agreement between companies at the same level
of the chain of distribution. This could include, for instance,
an agreement between two franchisors or between two franchisees. A vertical agreement is an agreement between companies at different distribution levels, such as one between a
franchisor and a franchisee.
Horizontal restraints such as price fixing or allocation of
territories or customers are illegal per se and may be subject to criminal prosecution. At one time, certain vertical
restraints, including vertical price fixing or airtight restrictions on territories or customers, were also illegal per se.6
Now, at least under federal antitrust law, both of these are
analyzed under the rule of reason.7
An agreement can be a tacit agreement or understanding.8 An agreement also can be implied by circumstantial
evidence. In regard to horizontal restraints such as price fixing, circumstantial evidence could include the exchange of
price information between competitors,9 conscious parallel
conduct,10 or meetings or other communications between
competitors.11 But none of these, by itself, is sufficient to
prove an agreement.12 A plaintiff relying on circumstantial
evidence to prove an agreement in restraint of trade “must
present evidence ‘that tends to exclude the possibility’ that
the alleged conspirators acted independently.”13
In regard to vertical price fixing, also known as resale
price maintenance, there is no agreement if a seller merely
announces its resale price policy and refuses to deal with
resellers who do not follow it.14 Also, there is no agreement
if a seller merely recommends a resale price, and a reseller
unilaterally decides to follow it.15 However, if the seller or
216 - Published in Franchise Law Journal, Volume 30, Number 4, Spring 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
reseller actually agrees on a resale price,16 if a reseller follows
the price set by the seller after being coerced to do so,17 or if
a reseller is terminated as a reseller pursuant to a price agreement between the seller and competing resellers, there is an
agreement and thus vertical price fixing.18
In certain limited circumstances, horizontal agreements
on price or other restraints may be judged under the rule of
reason rather than being found illegal per se. This includes
restraints that arise out of a joint venture and that were necessary to create a product19 or to market a product.20
Defining a Single Economic Enterprise
Copperweld Corp. v. Independence Tube Corp.
Before 1984, the intraenterprise conspiracy doctrine allowed
a court to find an illegal contract, combination, or conspiracy for purposes of Section 1 between a parent company
and its wholly owned subsidiary, between two wholly owned
subsidiaries, and among other commonly owned and controlled companies under appropriate circumstances.21 An
intraenterprise conspiracy could be found where “‘there
[was] enough separation between the [conspiring] entities to
make treating them as two independent actors sensible.’”22
However, in Copperweld Corp. v. Independence Tube
Corp.,23 the U.S. Supreme Court decided that there could be
no agreement under Section 1 between a corporation and its
wholly owned subsidiaries.24 The Court also reiterated that no
contract, combination, or conspiracy under Section 1 could
result from “coordinated conduct among officers or employees of the same company” or the “internally coordinated conduct of a corporation and . . . its unincorporated divisions.”25
According to the Court, “Congress treated concerted
behavior more [harshly] than unilateral [conduct]” because
“[c]oncerted activity inherently is fraught with anticompetitive risk. It deprives the marketplace of independent
centers of decisionmaking that competition assumes and
demands.”26 However,
the operations of a corporate enterprise organized into divisions must be judged as the conduct of a single actor. . . . A
division within a corporate structure pursues the common
interests of the whole. . . . [A] rule that punishes coordinated
conduct . . . because a corporation delegated certain responsibilities to autonomous units [could] discourage [a] corporation[] from creating divisions with their presumed benefits.27
This could “deprive consumers of the efficiencies” and
other benefits that may arise from decentralized management and would serve no antitrust purpose.28 For similar reasons, a company and its wholly owned subsidiaries
should be viewed as a single enterprise having a complete
unity of interest.29
Since 1984, the Copperweld doctrine has been expanded
by the lower courts to provide that there can be no contract, combination, or conspiracy under Section 1 between
wholly owned subsidiaries of the same parent corporation
or between two corporations with common ownership. The
courts have applied the Copperweld doctrine to a corporation and its partially owned subsidiaries in some cases and
rejected it in others.30
In the 2006 case of Texaco, Inc. v. Dagher,31 the Supreme
Court considered whether it is per se illegal for two companies
to agree to set prices charged by a joint venture. In Dagher,
Texaco and Shell Oil “consolidate[d] their operations in the
western United States,” forming a joint venture, Equilon,
and “ending competition between the two companies in the
domestic refining and marketing of gasoline.”32 “Equilon’s
board of directors would [be] comprise[d] [of] representatives
of Texaco and Shell Oil, and Equilon gasoline would [continue to] be sold to downstream purchasers under the original
Texaco and Shell Oil brand names.”33 “Equilon set a single
price for both Texaco and Shell Oil brand gasoline.” A class
of Texaco and Shell Oil service station owners claimed that
this was per se unlawful price fixing.34 The Court rejected this
claim, holding that the policy “amount[ed] to little more than
price setting by a single entity . . . and [was] not a pricing
agreement between competing entities” because Texaco and
Shell no longer competed in the relevant market.35
In other cases, defendants have also sought to have the
courts treat various forms of organizations, such as sports
leagues, health care systems, and franchise systems, as single economic enterprises. The results have been mixed.36
Some decisions have concluded that an organization can be
treated as a single economic enterprise for some facets of
its operation but not for others.37 This significantly enlarges
the number of organizations that can make use of the single
economic enterprise doctrine.
Franchise Cases Under Copperweld
A number of franchisors have asserted that a franchisor
and its franchisees should be treated as a single economic
enterprise and thus incapable of conspiring.38 But in some
cases, courts have found that franchisors and franchisees
are capable of conspiring. In the 1968 pre-Copperweld case
of Perma Life Mufflers, Inc. v. International Parts Corp.,39
plaintiffs, a group of franchisees, claimed that the franchisor and its parent corporation violated Section 1 by, among
other things, “preventing them from selling outside the[ir]
. . . territory, tying the sale of mufflers to the sale of other
products in the [franchisor’s] line, and requiring them to sell
at fixed . . . prices.”40 The Supreme Court rejected the single
economic enterprise defense asserted by defendants on the
basis that the franchisor was capable of conspiring with its
parent companies and two other subsidiaries.41 This position
has been overruled by Copperweld.42 The Perma Life Court
further provided an alternative reason for rejecting the
single economic enterprise defense: plaintiff could “clearly
charge a combination” between itself and the franchisor
if the franchisee “unwillingly complied with the restrictive
franchise agreements” or between the franchisor and other
franchisees “whose acquiescence in [the franchisor’s] firmly
enforced restraints was induced by” threats of termination.43
Two post-Copperweld decisions44 have followed this
217 - Published in Franchise Law Journal, Volume 30, Number 4, Spring 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
“able to sell more franchises at a higher price[]” and collect
alternative holding from Perma Life and found that franchiroyalties.54 Notably, the court rejected the claim that the
sors and franchisees are capable of conspiring in violation
of Section 1. These cases arose from complaints by franchifranchisees were in competition because they could vary
sees that the franchisor was forcing them to buy a product
their prices. According to the Williams court, consumers are
or service (the tied product) to maintain their franchise (the
unlikely to travel from one exclusive territory to another to
tying product). In both cases, the single economic enterprise
obtain a lower price on relatively inexpensive items.55 The
defense was denied, but plaintiffs’ antitrust claims failed on
commonality of interest was also supported by the fact that
other grounds. In a third post-Copperweld case,45 the court
the franchisor continued to receive “a royalty fee and a marfound that a franchisor and its prospective franchisees were
keting fee based upon a percentage of the [franchisee’s] gross
capable of conspiring in
sales.”56
regard to prices charged to
Examining the degree
warehouse distributors that
of control, the court found
American Needle will make it
would be competing with
that the franchisor exerthe franchisees.
cised almost complete conmore difficult for a franchisor
Notwithstanding these
trol over all the decisions
to argue that the franchise system
decisions, a number of
affecting the operation of
post-Copperweld cases, parthe franchise, including
is a single economic enterprise.
ticularly in the U.S. Court
the hours of operation,
of Appeals and certain disthe type of equipment that
trict courts located in the Ninth Circuit, have applied the
could be used, the insurance that the franchisee carried, and
single economic enterprise defense to franchise systems. In
a requirement that the franchisee “comply with all of the
the 1993 case of Williams v. I.B. Fischer Nevada,46 plainspecifications . . . in detailed manuals supplied by [the frantiff (Williams) asserted that Section 1 was violated by the
chisor].”57
no-switching clause in a franchise agreement between the
Hall v. Burger King Corp.58 concerned an antitrust claim
franchisor of Jack-in-the-Box restaurants and the franchiby a former franchisee that alleged that the franchisor had
see (Fischer), which was Williams’s former employer. The
“conspired with . . . majority [(white)] franchisees to limit
no-switching clause provided that the parties agreed “not
the opportunities of minority franchisees.”59 Although the
to offer employment to a manager of another Jack-in-thecourt found no evidence of conspiracy, it also stated that
Box within six months of termination from employment”
the conspiracy claim nonetheless “would fail because [the
at a previous Jack-in-the-Box restaurant without a written
franchisor] and its franchisees are incapable of conspiring
waiver from the previous owner.47
with each other.”60
The district court dismissed the Section 1 claim on the
In Search International, Inc. v. Snelling & Snelling, Inc.,61
basis that the franchisor and the franchisee were a single
a Texas district court found that a franchisor of career and
enterprise incapable of conspiring for purposes of Sectemporary personnel staffing businesses was incapable of
tion 1.48 The court emphasized that “[f]or two separate corconspiring with its franchisees under the single economic
porations to act as a single entity, it [was] not necessary that
enterprise doctrine.62 The court examined other franchise
49
one be owned, wholly or in part, by the other.” Instead,
cases and noted that whether a conspiracy was possible
“[t]he emphasis is properly placed upon the commonality of
hinged on “the facts of the particular relationship at issue
interest of the corporations and the degree of control exer[and] . . . whether a ‘unity of interests’ existed such that concised by the dominant corporation.”50
certed activity was not possible.”63 In Search International,
Examining the commonality of interest, the court found
the franchise agreement
that the franchisor had done “everything in its power to
minimize competition and promote uniformity [among the]
inextricably link[ed] the economic interest[] of [the franchisor] and its franchisees and creat[ed] a relationship in which
franchises”51: it provided for exclusive territories,
each franchise[e] serve[d] substantially the same products;
the products [were] serve[d] . . . in the same manner; the franchisor develop[ed] products and services for all franchise[es];
the employees dress[ed] alike; the decor of each franchise
[was] similar; [and] the franchises [were] advertised as a single enterprise with a single logo.52
This structure benefited both the franchisees and the
franchisor: the franchisees “prosper[ed] because of the uniformity of quality food and service” and because of “an
enhanced reputation.”53
At the same time, it benefited the franchisor, which was
[the franchisor] maintain[ed] almost complete control.
For [instance], [the franchisor] own[ed] all of the improvements, . . . advertising, . . . [and] inventions developed by
[the] franchisees as well as all goodwill associated with [the
franchisor]’s proprietary marks.64
“Although the franchise agreement allow[ed] solicitation
of clients without territorial restrictions,” the court found that
this “clause [did] not create a conflict of interest[] between [the
franchisor] and its franchisees that would negate the common
interest[] . . . created by the rest of the franchise agreement.”65
Also, plaintiff “offer[ed] no evidence . . . that the corporate
stores actually compete[d] with the franchises.”66
218 - Published in Franchise Law Journal, Volume 30, Number 4, Spring 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
In Abbouds’ McDonald’s, LLC v. McDonald’s Corp.,67
the district court considered a claim alleging a Section 1
conspiracy between the franchisor and other franchisees to
exclude plaintiff franchisee from bidding on certain promising stores. The court found that plaintiff lacked standing
because, among other reasons, it is impossible under law for
franchisees and franchisors to conspire in restraint of trade
since they are considered to be a single economic entity.68
Although McDonald’s does not contract with its franchisees for geographic exclusivity, the rest of the factors that the
Williams court took into account were present.69
The 2007 Alaska district court case of Alaska Rent-ACar, Inc. v. Cendant Corp.70 concerned a company (CCRG)
that owned the licensor of Avis car rental businesses that
subsequently acquired the Budget rental car business. A
franchisee of Avis claimed “that the agreements between
CCRG and the Avis and Budget licensees [under which]
the licensees [could] ‘opt into’ participation in the national
corporate accounts constitute[d] a horizontal restraint on
competition.”71 The court rejected this claim on a number
of grounds, including that the franchise system constituted
a single economic enterprise.72 In support of this finding,
the court noted that the Avis and Budget operations were
“indistinguishable” from those described in the Williams
decision: “the economic interests of [the franchisor] and [the
franchisee] [were] not divergent,” both sought to increase the
market share for Avis, and neither Avis nor Budget was a
competitor of the franchisee in its exclusive territory.73
In a 2011 Washington district court case, Danforth &
Associates, Inc. v. Coldwell Banker Real Estate, LLC,74 plaintiff franchisee alleged that the franchisor and another franchisee conspired in violation of Section 1 to prevent plaintiff
from opening another franchise. The court dismissed this
claim on the grounds, among others, that under the Copperweld doctrine as applied in the Ninth Circuit, the franchisor
and the other franchisee were not capable of conspiring.75
American Needle
In American Needle, Inc. v. National Football League,76 which
was handed down in May 2010, the Supreme Court considered
whether the National Football League (NFL) and its licensing affiliates should be treated under the Copperweld doctrine
as a single economic enterprise incapable of conspiring with
respect to the licensing program being challenged. The Court
concluded that the Copperweld doctrine did not apply and
that NFL’s licensing activities were “not categorically beyond
the coverage of § 1.” Rather, “[t]he legality of th[e] concerted
action [by the NFL teams and the licensing entity] must be
judged under the Rule of Reason,” and the Court remanded
the case to the lower courts for further consideration.77
“[T]he NFL is an unincorporated association [of] 32 separately owned professional football teams.” “In 1963, the
teams formed National Football League Properties (NFLP)
to develop, license, and market their intellectual property.”78
“Between 1963 and 2000, NFLP granted nonexclusive licenses to a number of vendors, [including American Needle, Inc.,]
permitting them to manufacture and sell apparel bearing
team insignias.”79 “In . . . 2000, the teams voted to authorize
NFLP to grant exclusive licenses, and NFLP granted Reebok
International Ltd. an exclusive 10-year license to manufacture and sell trademarked [hats] for all 32 teams.”80 American
Needle filed suit, claiming “that the agreements between the
NFL, its teams, NFLP, and Reebok violated” Section 1 (and
also Section 2 prohibiting monopolization).81
The Court stated a number of reasons that the Copperweld doctrine did not apply to NFL’s licensing activities.
First, although NFLP was a limited liability company and
legally distinct from NFL and its teams, the Court “eschewed
. . . formalistic distinctions [such as whether the alleged conspirators are legally distinct entities] in favor of a functional
consideration of how [they] actually operate.”82 Thus, the
Court has “repeatedly found instances in which members
of a legally [distinct] entity violated § 1 when the entity was
controlled by a group of competitors.”83
Second, the
key is whether the alleged “contract, combination or . . . , conspiracy” is concerted action—that is, whether it joins together
separate decisionmakers. The relevant inquiry . . . is whether
there is a “contract, combination . . . or conspiracy” amongst
“separate economic actors pursuing separate economic interests” . . . such that the agreement “deprives the marketplace of
independent centers of decisionmaking.”84
NFL and NFLP did not qualify as a single economic enterprise under these tests. Each of the NFL teams is independently owned and managed. The teams compete “to attract
fans, for gate receipts and for contracts with managerial and
playing personnel.”85 The teams also compete in the market for intellectual property, such as licensing trademarks to
apparel companies.86 A collective decision by the NFL teams
to license their separately owned trademarks “‘deprives the
marketplace of independent centers of decisionmaking’” and
therefore of actual or potential competition.87
The Court cited certain factors that made the decision
closer: NFLP was a separate corporation, NFLP had its
own management, and “most of the revenues generated by
NFLP are shared by the teams on an equal basis.”88 At least
with respect to the marketing of property owned by teams,
these were outweighed by other factors.89 “NFLP’s licensing
decisions are made by the 32 potential competitors”; each of
the thirty-two teams “owns its share of the jointly managed
assets”; and “[a]part from their agreement to cooperate in
exploiting those assets, including their decisions as the NFLP,
there would be nothing to prevent each of the teams from
making its own market decisions relating . . . to the granting
of licenses to use its trademarks.”90 Though not cited as a
factor in American Needle, the Court noted elsewhere that
“the teams are able to and have at times sought to withdraw
from this arrangement.”91 Also, notwithstanding the form of
organization of NFLP, “[t]he teams remain separately controlled, potential competitors with economic interests that
are distinct from NFLP’s financial well-being.”92
219 - Published in Franchise Law Journal, Volume 30, Number 4, Spring 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
the arrangement does not bring together separate decision
It is difficult to discern whether the Court would have
makers. NFLP was controlled by the NFL teams, which were
allowed single common enterprise treatment if the facts
potential economic competitors; the decision to grant excluwere slightly different. For instance, if NFLP had been
sive licenses was made by a vote of the teams.100 In contrast,
authorized to grant exclusive licenses without a vote of the
teams, would that have been enough to allow Copperweld
numerous operational decisions in many franchise systems
treatment for at least this facet of its operations? If the
are made by (or, at least, are subject to approval by) one deciCourt is weighing factors, there is an implication that the
sion maker, i.e., the franchisor. These decisions may include
factors could result in single economic enterprise treatment
the location of an operation, granting of exclusive territories,
in some circumstances.
advertising, restrictions on products or services sold, restricThe Court also seems to leave open the possibility that
tions on where sales may be made or solicited, specifications
NFLP could be a single economic enterprise for some facets
for product ingredients and processing, and requirements for
of its operations, even if not all. NFL and NFLP had argued
building specifications or leasehold improvements. Although
that they “were incapable
franchisees can make some
of conspiring, . . . at least
separate decisions such as
with respect to the conduct
the hiring of personnel,
American Needle still leaves room
challenged” by American
these decisions are often
Needle.93 The district court
subject to parameters set by
for advocating the single
in this case found that NFL
the franchisor (e.g., sources
economic entity defense for
and NFLP had so integratof supply) or subject to
approval by the franchisor
ed their operations “respectsome facets of franchise systems.
(e.g., advertising).
ing the exploitation of
It is more difficult to
intellectual property” that
distinguish franchise systems from NFL and NFLP on the
they should be treated as a single entity “in that facet of their
second test: whether there are “separate economic actors
operations.”94 The appellate court agreed, stating that the
pursuing separate economic interests.”101 The American Nee“question of whether a professional sports league is a single
entity should be addressed not only ‘one league at a time,’ but
dle Court said that NFLP and the NFL teams had separate
also ‘one facet of a league at a time.’”95 The Supreme Court
economic interests. NFL and NFLP have some common
reversed the Seventh Circuit’s holding but said that “NFLP’s
interest in promoting professional football, but, on other
actions are subject to § 1, at least with regards to the marketmatters, their interests are separate. They are separately
ing of property owned by the separate teams.”96
owned companies competing in many facets of their operaAlthough the Court in American Needle found the NFL
tions, including recruitment of players and management
teams to be potential competitors, it did not find the marketpersonnel, fan support, and sales of trademarked apparel.
ing arrangement for trademarked items to be illegal per se.
Much of the same thing can be said about many franRather, the Court remanded the matter to the lower courts
chise systems. The franchisors and the franchisees have a
to judge the legality of the concerted action under the rule
common interest in promoting the franchise system; but,
like NFLP, the franchise outlets are separately owned and
of reason.97
often, at least to some extent, compete for customers. However, the separate economic interests for franchise systems
Is the Copperweld Defense Still Viable?
are much less pronounced than for NFL and NFLP. FranAmerican Needle will make it more difficult for a franchichise systems, particularly business format franchise syssor to argue that the franchise system is a single economic
tems, are generally designed to promote uniformity in logos,
enterprise. However, franchise systems differ significantly in
methods of operation, products and services provided, and
many relevant respects from the NFL and NFLP arrangethe quality of those products and services. The franchisees
ments considered in American Needle. Therefore, American
present themselves to the public as one system; a publicized
Needle does not completely foreclose the argument that a
quality control problem at one outlet is likely to harm all
franchise system should be treated as a single economic
outlets. In contrast, the NFL teams may seek to differentiate
enterprise for at least some facets of its operations.
themselves on and off the field with different logos, different
There are post–American Needle cases allowing or
team quality and traditions, distinct stadiums, and different
describing favorably single economic enterprise treatment
marketing and public relations programs. As an example,
for a variety of nonfranchise organizations not under comone team may have a famous cheerleading squad, and other
mon ownership.98 Also, in the post–American Needle case
teams may have none.
of Danforth & Associates,99 discussed above, the Copperweld
The American Needle Court cited competition among the
doctrine was applied to the effect that a franchisor and a
teams as a factor indicating separate economic interests.102
franchisee are incapable of conspiring, but without any refIn Dagher,103 the lack of competition between the joint
erence to the American Needle decision.
venture parties was cited as a factor allowing the joint venFranchise systems generally are much more likely than the
ture to be treated as a single entity under Copperweld.104 In
NFL and NFLP arrangements to pass the critical test that
Williams105 and other earlier cases described above finding
220 - Published in Franchise Law Journal, Volume 30, Number 4, Spring 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
franchise systems to be a single economic enterprise, the
lack of competition between the franchisor and the franchisees or among the franchisees was often cited as a factor.106
In Search International,107 furthermore, the court stated
that there was no evidence that company stores competed
with franchised operations. Although franchisees could
solicit customers “without territorial restrictions, this one
clause [did] not create a conflict of interest[] between Snelling and its franchisees that would negate the common interests . . . created by the rest of the franchise agreement.”108
In Abbouds’,109 the court found the franchise system to be a
single economic enterprise even though McDonald’s did not
give the franchisees geographic exclusivity.110
The scope of competition between a franchisor and its
franchisees and among franchisees in the same franchise system will vary from one franchise system to another depending on whether the franchisor operates company outlets,
whether the franchisees are granted exclusive territories, and
the geographic locations of the various outlets. Even if the
franchisees are granted exclusive territories, there may still
be competition among them because customers can travel to
different geographic areas to shop for the franchisees’ products or services.111
However, even when franchisees do compete, the parameters of that competition are generally set by one entity—the
franchisor. In American Needle, the parameters for competing and pursuing the “‘common interests of the whole’”112
were determined by the teams. The presence of competition within a franchise system would be a factor tending to
push a franchise system away from being treated as a single economic unit, but, based on Search International and
Abbouds’, not necessarily a fatal one.
Some of the other factors considered by the American
Needle Court that favored single economic enterprise treatment for NFLP are present in most franchise systems, while
others are not. Unlike NFLP, a franchisor and its franchisees
do not act through a single separate corporation. However,
in a franchise system, the franchisor chooses the owners to
which it grants franchises. Although the franchisor may not
choose the management of the franchisees, it generally will
establish standards for management and train some of the
franchisee’s managers.
The fact that most of the revenues of NFLP are shared by
the teams on an equal basis tended to show a single economic
enterprise. A franchisor and franchisees do not share revenues
on an equal basis, but they usually share revenues from royalties
paid to the franchisor based on the revenues of the franchisees.
Finally, according to the American Needle Court, “[a]
part from the[] agreement [of the NFL teams] to cooperate in exploiting [their trademarks and logos], there would
be nothing to prevent each of the teams from making its
own market decisions relating to purchases of apparel and
headwear, to the sale of such items, and to the granting of
licenses to use its trademarks.”113 In contrast, in a franchise
system, the franchisees are dependent on the franchisor for
the trademarks, operating know-how, and the franchise system, among other things.
This comparison of franchise systems to NFL and NFLP
does not apply to the usual relationship between a seller
and its dealers or distributors. Franchise systems are different from most distribution systems because the franchisor generally will have more control over what a franchisee
does than a seller will have over its distributors. In fact, the
amount of control maintained by the franchisor is one of
the factors distinguishing a franchise system from a distribution system. This is particularly true where, as is often the
case, the distributors carry products of a variety of suppliers, as opposed to a franchisee that operates its franchise
business solely as part of the franchise system.
Application of the Copperweld Defense
to Certain Franchise Issues
The advantage of the single economic enterprise defense is
that, if sustained, it eliminates the conspiracy, combination,
or contract element of a Section 1 claim and defeats the Section 1 claim altogether. It also has the additional advantage
of requiring simpler and less expensive proof than a defense
under the rule of reason, which potentially requires significant economic analysis.
There is no certainty if and when the Copperweld doctrine will be successful in defending a franchisor from claims
under Section 1,114 but American Needle still leaves room for
advocating the single economic entity defense for some facets of franchise systems, as described below.
Conditions to Application of the
Copperweld Defense
In order for a court to apply the Copperweld defense to a
franchise system, it must be willing to apply that defense to
certain facets of the operations of an organization while not
applying the defense to all of the operations of a franchise
system. As explained below, this is because there are only
certain facets of a franchise operation for which the Copperweld defense would be appropriate.
Second, the availability of the Copperweld defense may
vary from one franchise system to another. In particular, the
greater the amount of control of the franchise system that
the franchisor exercises and the more the franchisor limits
competition between the franchisor and the franchisees and
among franchisees, the more likely it is that the Copperweld
defense will apply.
Third, if the Copperweld defense were to apply, a court
would have to accept that an organization, such as a franchise system, may have only one significant decision maker
on some facets of its operations even though the organization consists of a number of different actors that act independently on other matters. If so, Copperweld would be
available only to operations where there are not separate
decision makers.
Fourth, if the Copperweld defense were to apply, a court
would have to accept that there can be a single economic
enterprise if there is only one decision maker but separate
221 - Published in Franchise Law Journal, Volume 30, Number 4, Spring 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
economic actors who sometimes pursue common economic
interests and sometimes pursue separate ones. Accordingly,
in many cases, a court would also have to accept that a franchisor and franchisees can have common economic interests
even though they may compete in some circumstances.
Vertical Territorial Restraints
Since 1977, territorial limitations and location requirements
have been judged under the rule of reason115 and have rarely
been challenged successfully.116 Nonetheless, the Copperweld
doctrine might be particularly useful in these circumstances.
If the geographic restraints are imposed by the unilateral
decision of the franchisor, as is often the case, there are not
separate decision makers. Also, the geographic restraints
will generally indicate that the franchisees and perhaps the
franchisor will not compete with each other, and this will
support the claim of a common economic interest.117
Resale Price Maintenance
The Copperweld doctrine may be even more useful in response
to a resale price maintenance claim. Resale price maintenance
was once regarded as illegal per se.118 However, since 1997,
maximum resale price maintenance has been judged by the
rule of reason;119 and under the 2007 case of Leegin Creative
Leather Products, Inc. v. PSKS, Inc.,120 minimum resale price
maintenance is now judged under the rule of reason. As a
result, it has become much more difficult for a plaintiff to sustain a resale price maintenance case, though not impossible.121
The single economic enterprise defense should make it
even more difficult because, if it succeeds, the plaintiff would
not be able to sustain its Section 1 claim even if it could otherwise prevail on the basis of the rule of reason. To succeed in
that defense, the franchisor would have to argue that there are
not separate decision makers in the franchise system because
it maintains sufficient control of the franchise system and that
the franchisor and the franchisees have common economic
interests. If the franchisor dictated minimum resale prices
prior to Leegin, it would likely have faced per se liability under
federal law and still may face per se liability under state law.
However, if the franchisor merely recommends resale prices,
the franchisees remain free to sell at different prices, and the
franchisees follow the recommended resale prices voluntarily,
there is no agreement on resale prices and thus no agreement
in violation of Section 1.122
If a franchisor does not dictate prices but merely recommends them, it seems more likely that there are separate
decision makers. However, under Williams,123 the fact that
franchisees could vary their prices was not enough to prevent single economic enterprise treatment.124 Furthermore,
if most franchisees follow the franchisor’s recommendations
on prices most of the time, the franchisor would still appear
to have enough significant control to argue that it is the sole
decision maker in the franchise system. In light of the ambiguity of the Copperweld defense, using recommended prices
is still the safer cause of action.
State Resale Price Maintenance Cases
The single economic enterprise doctrine may be even more
helpful in considering resale price maintenance claims under
state antitrust laws. Leegin has generated a lot of opposition among the states.125 Although most states interpret
their own antitrust laws in accordance with federal antitrust
precedent, in many states that is not mandatory. Some states
continue to treat minimum resale price maintenance as illegal per se and have brought cases on that basis.126
Most states, however, follow the Copperweld doctrine,127
even some of those that have been opposed to Leegin.128 In
the latter case, a defendant should be able to argue that even
if resale price maintenance is illegal per se as an agreement in
restraint of trade under state law, it should not be illegal for
a franchise system that is treated as a single economic enterprise. That is, resale price maintenance requires an agreement;
and if the franchise system is a single economic enterprise,
the franchisor and its franchisees are incapable of conspiring.
Restrictions Initiated by Franchisees
Agreements on restricted territories or resale prices that are
initiated by franchisees could be construed as horizontal agreements, and the Leegin decision cited this as a factor that could
support a claim that a resale price maintenance agreement is
illegal under the rule of reason.129 However, if a franchisor
makes a decision on exclusive territories or resale prices independently, even after responding to comments or suggestions
from franchisees, there should be no illegal agreement because
the decision was made vertically, not as a result of a horizontal
conspiracy.130 If the franchisees pressured or coerced the franchisor’s decision, the pricing or territorial restrictions are more
likely to be considered horizontal and illegal131 and are more
likely to be illegal under the rule of reason.132
Similarly, under the single economic enterprise doctrine, if
the franchisor is making pricing and territorial decisions independently (even after responding to comments or suggestions
from franchisees), the franchise system would seem to have
one decision maker making decisions for the common interest of the franchise system, and the single economic interest
defense is more likely to apply. If the franchisees pressured or
coerced the franchisor’s decision, it seems less likely that the
franchisor is the single decision maker and less likely that the
single economic enterprise defense would apply.
Joint Actions by Franchisees
If a franchise system were treated as a single common enterprise in all facets of its operations, even a horizontal agreement among franchisees (which are not commonly owned)
to fix prices would be immune from challenge.133 This result,
however, is foreclosed by American Needle because the
franchisees are separate decision makers. Accordingly, collaborative actions by franchisees or dealers have resulted in
antitrust violations in a number of situations, including collusion among dealers to prevent the franchisor from granting
222 - Published in Franchise Law Journal, Volume 30, Number 4, Spring 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
a new franchise134 or to exclude a dealer from a trade show;135
collusion of “dealers not to compete with each other”;136 or
collusion of dealers to force the franchisor to take action
against a discounting dealer.137 The Copperweld doctrine,
as interpreted in American Needle, would not be useful in
defending any of these actions. In each of them, there are
separate decision makers consisting of the franchisees and,
in some cases, the franchisor. Also, in each of them, there are
separate economic interests among the franchisees because a
group of franchisees is acting against the interests of another current or potential franchisee and, perhaps, against the
interests of the franchisor, which may wish to have additional
franchisees and to support all of its franchisees.
Similarly, if a group of franchisees act together to try to
negotiate over prices or royalties, there is a risk of horizontal
price-fixing allegations.138 The single economic enterprise doctrine will undoubtedly be of no benefit in this situation because
not only are there separate decision makers, but the franchisor
and franchisees are each pursuing separate interests.
Independent Franchisee Associations
Nevertheless, in many franchise systems, the franchisees act
together in independent franchisee associations that conduct
various activities for the benefit of the franchise system.
Activities of an independent franchisee association may
include joint purchasing, joint information collection and
dissemination, and joint advertising. None of these activities necessarily violates Section 1 but could under certain
circumstances.139
Even if the independent franchisee association is organized as a distinct entity, such as a corporation, this would
not prevent its actions from being treated as a contract,
combination, or conspiracy under Section 1. If the competitor franchisees, rather than the franchisor, are making the
decisions for the independent franchisee association, such
an association would be similar to NFLP as considered
under American Needle.
However, some activities of an independent franchisee
association may be able to take advantage of the Copperweld doctrine. This would require franchisor involvement as
the sole decision maker and would have to include activities where the franchisors and the franchisees have a common economic interest. The discussion below of joint price
advertising is an example of this.
Joint Price Advertising
Joint advertising by franchisees should not usually present
an antitrust problem. If the joint advertising is merely promoting the brand and not unfairly excluding any franchisee,
it is merely providing procompetitive promotion and would
not have any anticompetitive impact.
However, joint price advertising by franchisees poses Section 1 risks, both for the horizontal aspects (an agreement
among the franchisees as to price) and the vertical aspects (an
agreement by the franchisees with the franchisor).
If the franchisees were to develop a price themselves and
provide for joint advertising by themselves, there would be
a significant risk of a horizontal price-fixing claim.140 It
would be difficult to argue that the franchisees only agreed
on the advertising but not on the price. A tacit agreement
can be enough to state an agreement on price, but agreeing
to participate in price advertising seems to go beyond a tacit
agreement because the joint advertisement implies that each
franchisee is agreeing to the price and may be required to sell
at no more than the advertised price. The single economic
enterprise doctrine would be of no help here because the
joint advertising involves joint activity by a number of separate decision makers.
Joint advertising at prices suggested by the franchisor is
more defensible. If the franchisees are advertising at a certain price based on an agreement with the franchisor, it is a
vertical agreement subject to the rule of reason and not a
horizontal agreement subject to per se illegality. For antitrust purposes, the joint advertising should be structured
so that the franchisees can participate or not participate
voluntarily, and the advertising would generally make clear
that these prices are available at participating stores only.
Although an agreement by a franchisee to participate in
joint price advertising seems very much like an agreement to
sell at the advertised price, the price agreement under federal
law is judged under the rule of reason if it is vertical.
The single economic enterprise defense could apply
because there is only one decision maker, the franchisor, on
the advertised price, and the franchisor and the franchisees
have substantially the same interest in selling the advertised
products and services. Unlike the NFL teams and NFLP
apparel, those would be the same products or services
regardless of which franchisee makes any particular sale.
If the franchisees are allowed to participate at their own
discretion, that would make the single economic enterprise
defense more difficult because there would be separate decision makers, but only as to whether to opt in. However, if
most franchisees opt in most of the time, the franchisor would
still appear to have enough significant control to argue that it
is the sole decision maker in the franchise system.
Conclusion
American Needle does not completely foreclose the argument that a franchise system should be treated as a single
economic enterprise for some facets of its operations. The
success of that defense will depend on how a specific franchise system is operated. The single economic enterprise
defense is more likely to be applicable as the franchisor exercises greater control over the operations of the franchisees
and as the intrasystem competition decreases between the
franchisor and the franchisees and among the franchisees.
If the single economic defense is available, it should be of
particular help to franchisors defending vertical restraints
because these restraints are imposed by the franchisor itself.
The single economic enterprise defense has been applied differently by different federal courts, may be applied differently by
223 - Published in Franchise Law Journal, Volume 30, Number 4, Spring 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
different states (particularly where the underlying state antitrust
interpretations may vary from federal interpretations, such as in
resale price maintenance cases), and remains open to interpretation and further development by the courts. Because of these
variances and the need for further development, this doctrine
at present is most useful for defending the franchise system in
active litigation rather than for prospective counseling.
Endnotes
1. 15 U.S.C. § 1.
2. Am. Needle, Inc. v. Nat’l Football League, 130 S. Ct. 2201,
2207 (2010).
3. 130 S. Ct. 2201.
4. 15 U.S.C. § 1 provides that “[e]very contract, combination in
the form of trust or otherwise, or conspiracy, in restraint of trade
or commerce among the several States, or with foreign nations, is
declared to be illegal.”
5. State Oil Co. v. Khan, 522 U.S. 3, 10 (1997).
6. See, e.g., Dr. Miles Med. Co. v. John D. Park & Sons Co., 220
U.S. 373, 384–85 (1911) (holding that an agreement between a supplier and a distributor to fix a minimum resale price is illegal per se),
overruled by Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S.
877, 907 (2007); United States v. Arnold, Schwinn & Co., 388 U.S.
365, 379 (1967) (declaring that a manufacturer’s territorial restrictions on its distributor’s sales are illegal per se), overruled by Cont’l
T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977).
7. See, e.g., Cont’l T.V., 433 U.S. at 58–59 (1977) (overruling
Schwinn and stating that vertical restrictions on sales are subject to
the rule of reason standard); State Oil, 522 U.S. at 18 (overruling
Albrecht v. Herald Co., 390 U.S. 145 (1968), and holding that vertical maximum price-fixing is governed by the rule of reason); Leegin,
551 U.S. at 907 (overruling Dr. Miles and declaring that vertical price
restraints are to be governed by the rule of reason). At least one state
has expressly retained the per se rule for minimum resale price maintenance. Md. Code Ann., Com. Law § 11-204.
8. Norfolk Monument Co. v. Woodlawn Mem’l Gardens, Inc.,
394 U.S. 700, 704 (1969).
9. In re Flat Glass Antitrust Litig., 385 F.3d 350, 369 (3d Cir.
2004).
10. Am. Tobacco Co. v. United States, 328 U.S. 781, 805 (1946).
11. United States v. Beaver, 515 F.3d 730, 738 (7th Cir. 2008).
12. See, e.g., Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (holding that an allegation of parallel conduct, without more, is insufficient
to state a claim for relief under the antitrust laws); Theatre Enters.,
Inc. v. Paramount Film Distrib. Corp., 346 U.S. 537, 541 (1954) (stating that parallel pricing, without more, does not establish an antitrust
violation); In re Baby Food Antitrust Litig., 166 F.3d 112, 133 (3d Cir.
1999) (holding that exchanges of information by persons with no pricing authority could be mere “chit chat”); In re Citric Acid Litig., 191
F.3d 1090, 1098 (9th Cir. 1999) (finding that attendance at trade association meeting could not imply an agreement without more details);
ABA Section of Antitrust Law, Antitrust Handbook for Franchise and Distribution Practitioners (2008); ABA Section of Antitrust Law, Antitrust Law Developments 9–17 (6th ed. 2007).
13. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 588 (1986) (quoting Monsanto Co. v. Spray-Rite Serv. Corp.,
465 U.S. 752, 764 (1984)).
14. United States v. Colgate & Co., 250 U.S. 300, 307 (1919).
15. United States v. Parke, Davis & Co., 362 U.S. 29, 44 (1960).
16. Id. at 45.
17. See, e.g., Bender v. Southland Corp., 749 F.2d 1205, 1213–14
(6th Cir. 1984) (holding that actual or threatened action, beyond suggestion, in order to induce a reseller to adhere to the manufacturer’s
prices, states a claim for relief under Section 1 of the Sherman Act).
18. See generally Monsanto, 465 U.S. 752.
19. See Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of the
Univ. of Okla., 468 U.S. 85, 99–101 (1984) (holding that the per se rule
would not be appropriate to NCAA rules limiting broadcasting by college football teams because certain horizontal restraints on competition in league sports are essential if the product is to be available at all).
20. E.g., Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441
U.S. 1, 20–21 (1979) (The issuance of blanket licenses by defendants
ASCAP and BMI of copyrighted musical compositions of thousands of copyright holders at fees negotiated by ASCAP and BMI
was not price fixing that was illegal per se but should be judged under
the rule of reason. Joint ventures and other cooperative ventures are
not usually unlawful as price fixing schemes “where the agreement
on price is necessary to market the product at all.”); see also U.S.
Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines
for Collaborations Among Competitors, reprinted in 4 Trade Reg.
Rep. (CCH) ¶ 13,161 (2000).
21. See, e.g., United States v. Citizens & S. Nat’l Bank, 422 U.S.
86, 116 (1975) (“[E]ven commonly owned firms must compete
against each other, if they hold themselves out as distinct entities.”).
22. Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 759
(1984) (quoting Indep. Tube Corp. v. Copperweld Corp., 691 F.2d
310, 318 (7th Cir. 1982)). Factors to consider in determining the
amount of separation included whether the parent and subsidiary
had separate management staffs, separate corporate offices, separate
clients, separate records and bank accounts, separate corporate offices, and autonomy in setting policy. Copperweld, 467 U.S. at 759 n.2.
23. 467 U.S. 752.
24. Id. at 771.
25. Id. at 769–70.
26. Id. at 768–69.
27 . Id. at 771.
28. Id. at 770–71.
29. Id. at 771.
30. See ABA Section of Antitrust Law, Antitrust Law Developments 27–29 (6th ed. 2007) (citing cases).
31. 547 U.S. 1 (2006).
32. Id. at 4.
33. Id.
34. Id. at 3.
35. Id. at 5–6. Notably, the Court left open the question of whether the joint venture’s conduct was subject to the rule of reason and
did not reach the question of whether the Sherman Act is inapplicable to joint ventures. Id. at 7 n.2.
36. See, e.g., Am. Needle, Inc. v. Nat’l Football League, 130 S. Ct.
2201 (2010) (holding that the National Football League (NFL) and its
teams are not a single entity for the purpose of licensing intellectual
property); Nat’l Hockey League Players Ass’n v. Plymouth Whalers
Hockey Club, 419 F.3d 462, 470 (6th Cir. 2005) (stating that when
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thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
adopting playing eligibility rules, the member teams are multiple actors
acting in concert); Sullivan v. Nat’l Football League, 34 F.3d 1091, 1099
(1st Cir. 1994) (finding that competition between the member clubs
precludes application of the Copperweld doctrine); Bolt v. Halifax
Hosp. Med. Ctr., 891 F.2d 810, 819 (11th Cir. 1990) (en banc) (holding
that a hospital could conspire with members of its staff because they
are legally separate entities); Will v. Comprehensive Accounting Corp.,
776 F.2d 665, 669–70 (7th Cir. 1985) (refusing to apply Copperweld to
franchised accounting company); L.A. Mem’l Coliseum Comm’n v.
Nat’l Football League, 726 F.2d 1381, 1387 (9th Cir. 1984) (rejecting
argument, prior to the Copperweld decision, that NFL is a single entity
and thus immune from antitrust scrutiny); Perinatal Med. Group, Inc.
v. Children’s Hosp. Cent. Cal., 2010 U.S. Dist. LEXIS 36694, at *17
(E.D. Cal. 2010) (deciding that hospital and medical group providing services at the hospital were capable of conspiring). But see Jack
Russell Terrier Network v. Am. Kennel Club, Inc., 407 F.3d 1027,
1035 (9th Cir. 2005) (finding single economic enterprise for a national
dog breeding club and its affiliates); Mt. Pleasant v. Associated Elec.
Coop., Inc., 838 F.2d 268, 271 (8th Cir. 1988) (holding that a rural
electric cooperative is a single economic enterprise); Calculators Haw.,
Inc. v. Brandt, Inc., 724 F.2d 1332, 1336 (9th Cir. 1983) (finding a
principal and the principal’s agent to be a single economic enterprise);
Rowell v. Valleycare Health Sys., 2010 U.S. Dist. LEXIS 113213, at
*12 (C.D. Cal. 2010) (hospital and doctor acting in his role as chief of
staff were a single economic enterprise in connection with plaintiff’s
challenge to suspension of hospital privileges).
37. See Chi. Prof’l Sports Ltd. P’ship v. Nat’l Basketball Ass’n,
95 F.3d 593, 600 (7th Cir. 1996) (noting that sports leagues are sufficiently diverse that it may be necessary to consider Copperweld “one
facet of a league at a time”); Am. Needle, Inc. v. New Orleans La.
Saints, 496 F. Supp. 2d 941, 943 (N.D. Ill. (2007), aff’d sub nom., Am.
Needle, 538 F.3d 736 (7th Cir. 2008), rev’d, 130 S. Ct. 2201 (2010);
Weiss v. York Hosp., 745 F.2d 786, 814–15 (3d Cir. 1984) (finding
that individual members of a hospital’s medical staff were capable
of conspiring among themselves because they were in competition
in practicing medicine but could not conspire on hospital staff privilege decisions because they were acting as officers of the hospital);
Stanislaus Food Prods. Co. v. USS-POSCO Indus., 2010 U.S. Dist.
LEXIS 92236, at *68 (E.D. Cal. 2010) (“There are no allegations
that defendants are ‘independent centers of decision making,’ as it
pertains to the alleged wrongful conduct, which permit concerted
conduct under the American Needle functional evaluation.”); cf.
Brown v. Pro Football, Inc., 518 U.S. 231, 248–49 (1996) (stating, in
dicta, that for purposes of labor negotiations, the National Football
League is “more like a single bargaining employer”).
38. See generally Suzanne E. Wachstock & Erica L. Amarante,
Antitrust and Franchising: Conspiracies Between Franchisors and
Franchisees Under Section 1, 23 Franchise L.J. 7 (2003).
39. 392 U.S. 134 (1968).
40. Id. at 137.
41. Id. at 141–42.
42. See Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752,
771–72, 772 n.2 (1984) (disavowing Perma Life).
43. 392 U.S. at 142.
44. Will v. Comprehensive Accounting Corp., 776 F.2d 665 (7th
Cir. 1985); Arno Park, Inc. v. Yogurt Adventures U.S.A., Inc., 19942 Trade Cas. (CCH) ¶ 70,825 (W.D. Mo. 1994). A third tying case
that followed the alternative reasoning in Perma Life was Western
Duplicating, Inc. v. Riso Kagaku Corp., 2001-1 Trade Cas. (CCH) ¶
73,135 (E.D. Cal. 2000), which involved a manufacturer and a dealer
rather than a franchise.
45. Motive Parts Warehouse v. Facet Enters., 774 F.2d 380, 387–
88 (10th Cir. 1985).
46. 794 F. Supp. 1026 (D. Nev. 1992), aff’d, 999 F.2d 445 (9th Cir.
1993).
47. Id. at 1029.
48. Id. at 1032.
49. Id.
50. Id.
51. Id.
52. Id. at 1031.
53. Id. at 1032.
54. Id.
55. Id. at 1031.
56. Id. at 1032.
57. Id.
58. 912 F. Supp. 1509 (S.D. Fla. 1995).
59. Id. at 1548.
60. Id.
61. 168 F. Supp. 2d 621 (N.D. Tex. 2001).
62. Id. at 627.
63. Id. at 626.
64. Id.
65. Id.
66. Id.
67. 2005 U.S. Dist. LEXIS 30053 (W.D. Wash. 2005), aff’d, 2006
U.S. App. LEXIS 17187 (9th Cir. 2006).
68. Id. at *11.
69. Id. at *11–12.
70. 2007 U.S. Dist. LEXIS 55474 (D. Alaska 2007).
71. Id. at *73.
72. Id. at *74–75.
73. Id. at *75–78.
74. 2011 U.S. Dist. LEXIS 10882 (W.D. Wash. 2011).
75. Id. at *5–7.
76. Am. Needle, Inc. v. Nat’l Football League, 130 S. Ct. 2201
(2010).
77. Id. at 2206–07.
78. Id. at 2207.
79. Id.
80. Id.
81. Id.
82. Id. at 2209.
83. Id.
84. Id. at 2212.
85. Id. at 2212–13.
86. Id. at 2212.
87. Id.
88. Id. at 2214.
89. Id.
90. Id. at 2214–15.
91. Id. at 2207.
92 . Id. at 2215.
93. Id. at 2207.
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thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
94. Am. Needle, Inc. v. New Orleans La. Saints, 496 F. Supp. 2d
941, 943 (N.D. Ill. 2007), aff’d sub nom., Am. Needle, 538 F.3d 736
(7th Cir. 2008), rev’d, 130 S. Ct. 2201 (2010).
95. Am. Needle, 538 F.3d at 742.
96. Am. Needle, 130 S. Ct. at 2214.
97. Id. at 2207, 2217.
98. See, e.g., Deutscher Tennis Bund v. ATP Tour, Inc., 610 F.3d
820, 837 (3d Cir. 2010) (affirming jury verdict that an association of
tennis professionals and organizers of men’s tennis tournaments did
not violate Section 1 and discussing but not making a decision on the
single economic entity defense); Rowell v. Valleycare Health Sys., 2010
U.S. Dist. LEXIS 113213, at *12 (C.D. Cal. 2010) (finding that hospital and doctor acting in his role as chief of staff were a single economic enterprise in connection with plaintiff’s challenge to suspension
of hospital privileges); Stanislaus Food Prods. Co. v. USS-POSCO
Indus., 2010 U.S. Dist. LEXIS 92236, at *68 (E.D. Cal. 2010) (holding
that joint venture and its owners are a single economic enterprise).
99. 2011 U.S. Dist. LEXIS 10882 (W.D. Wash. 2011).
100. Am. Needle, 130 S. Ct. at 2207.
101. Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 769
(1984).
102. Am. Needle, 130 S. Ct. at 2212–13.
103. Texaco, Inc. v. Dagher, 547 U.S. 1, 5–6 (2006).
104. Id.
105. 794 F. Supp. 1026 (D. Nev. 1992), aff’d, 999 F.2d 445 (9th
Cir. 1993).
106. The court in Williams cited as a factor in support of the
common interest of the franchisors and the franchisees that the franchisor sought to minimize competition among the franchisees. Id.
at 1031–32; see also Search Int’l, Inc. v. Snelling & Snelling, Inc.,
168 F. Supp. 2d 621, 626 (N.D. Tex. 2001) (holding that plaintiffs
failed to offer any evidence that the company stores compete with
the franchisees); Alaska Rent-A-Car, Inc. v. Cendant Corp., 2007
U.S. Dist. LEXIS 55474, at *78 (D. Alaska 2007) (noting that none
of defendants was a competitor of plaintiff in its exclusive territory).
107. 168 F. Supp. 2d 621.
108. Id. at 626.
109. 2005 U.S. Dist. LEXIS 30053 (W.D. Wash. 2005), aff’d, 2006
U.S. App. LEXIS 17187 (9th Cir. 2006).
110. Id. at *11–12.
111. Antitrust Handbook, supra note 12, at 72.
112. Am. Needle, Inc. v. Nat’l Football League, 130 S. Ct. 2201,
2212 (2010) (quoting Copperweld Corp. v. Indep. Tube Corp., 467
U.S. 752, 770 (1984)).
113. Id. at 2214–15.
114. See generally Quentin R. Wittrock & Jeremy L. Johnson, Can
American Needle Be Applied to Poke Holes in Franchise and Distribution Practices?, 14 Distribution 3 (Sept. 2010) (analyzing American
Needle in franchising and distribution practice); Suzanne E. Wachstock
& Erica L. Amarante, Antitrust and Franchising: Conspiracies Between
Franchisors and Franchisees Under Section 1, 23 Franchise L.J. 7, 13
(2003) (discussing the application of Copperweld to franchise systems).
115. Cont’l T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 58–59
(1977).
116. See, e.g., Graphic Prods. Distribs., Inc. v. Itek Corp., 717
F.2d 1560, 1578 (11th Cir. 1983) (affirming jury verdict finding
that manufacturer’s territorial restraints violated Section 1 of the
Sherman Act).
117. Williams v. I.B. Fischer Nev., 794 F. Supp. 1026, 1031–32
(D. Nev. 1992).
118. Dr. Miles Med. Co. v. John D. Park & Sons Co., 220 U.S.
373, 384–85 (1911) (holding that an agreement between a supplier
and a distributor to fix a minimum resale price is illegal per se), overruled by Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877
(2007); Albrecht v. Herald Co., 390 U.S. 145 (1968), overruled by
State Oil Co. v. Khan, 522 U.S. 3, 18 (1997).
119. State Oil, 522 U.S. at 18.
120. 551 U.S. at 907.
121. Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc., 530
F.3d 204, 225–26 (3d Cir. 2008) (reversing directed verdict on resale
price maintenance claim); cf. Jacobs v. Tempur-Pedic Int’l, Inc., 626
F.3d 1327, 1336–38 (11th Cir. 2010) (dismissing plaintiff’s complaint
for failing to properly allege a relevant market). See generally Steven
B. Feirman & Allen P. Hillman, Antitrust Issues Back in Vogue, ABA
Forum on Franchising 9–14 (2010).
122. United States v. Parke, Davis & Co., 362 U.S. 29, 44 (1960).
123. 794 F. Supp. 1026 (D. Nev. 1992), aff’d, 999 F.2d 445 (9th
Cir. 1993).
124. Id. at 1031.
125. See, e.g., Feirman & Hillman, supra note 121, at 14. For
instance, subsequent to Leegin, Maryland adopted a statute that
specifically provides that minimum resale price maintenance is illegal
per se in that state. Md. Code Ann., Com. Law § 11-204.
126. See Michael A. Lindsay, State Resale Price Maintenance
Laws After Leegin, The Antitrust Source 4 (Oct. 2009); Feirman &
Hillman, supra note 121, at 14 (discussing cases).
127. E.g., Freeman v. San Diego Ass’n of Realtors, 91 Cal. Rptr.
2d 534, 547 (Cal. Ct. App. 1999); Am. Credit Card Tel. Co. v. Nat’l
Pay Tel. Corp., 504 So. 2d 486, 488 (Fla. Dist. Ct. App. 1987); N. Atl.
Utils., Inc. v. Keyspan Corp., 762 N.Y.S.2d. 820, 821 (N.Y. App. Div.
2003); Puentes v. Spohn Health Network, 2009 Tex. App. LEXIS
4131, at *13 (Corpus Christi, Tex. App. 2009) (petition denied).
128. See Verma v. Giancarlo, 2000 Mich. App. LEXIS 1139,
at *25 (Mich. Ct. App. 2000) (citing Copperweld favorably for the
proposition that Section 1 does not extend to unilateral conduct);
Natural Design, Inc. v. Rouse Co., 485 A.2d 663, 669 (Md. 1984)
(affirming that federal law applies to Maryland’s antitrust statute
and stating that the Sherman Act does not reach unilateral conduct).
Federal antitrust precedent is binding on the antitrust laws of some
states and is merely persuasive in others. See James A. Wilson, State
Antitrust Law, Corporate Practice Series Portfolio No. 52-3d, at
A-13, A-14 (BNA) (2010).
129. Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877,
897–98 (2007); see also Toledo Mack Sales & Serv., Inc. v. Mack Trucks,
Inc., 530 F.3d 204, 223 (3d Cir. 2008) (stating that plaintiff must prove
more than that other dealers complained to defendant about price cutting; plaintiff must prove that there was a “meeting of the minds”).
130. Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764
(1984).
131. See Antitrust Handbook, supra note 12, at 104–05.
132. Leegin, 551 U.S. at 897–98.
133. Wachstock & Amarante, supra note 114.
134. E.g., Am. Motor Inns v. Holiday Inns, Inc., 521 F.2d 1230,
continued on page 238
226 - Published in Franchise Law Journal, Volume 30, Number 4, Spring 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
1254 (3d Cir. 1975); see also Big Apple BMW, Inc. v. BMW of N.
Am., Inc., 974 F.2d 1358, 1364–65 (3d Cir. 1992) (denying motion
for summary judgment where plaintiff alleged that automobile manufacturer colluded with other dealers to terminate plaintiff).
135. Denny’s Marina v. Renfro Prods., 8 F.3d 1217, 1220–22 (7th
Cir. 1993).
136. See Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc.,
530 F.3d 204, 211 (3d Cir. 2008) (reversing directed verdict for defendant in antitrust action).
137. In re Fair Allocation Sys., Inc., 126 F.T.C. 626 (1998).
138. See Fed. Trade Comm’n v. Superior Court Trial Lawyers
Ass’n, 493 U.S. 411, 435–36 (1990) (holding that an economic boycott is per se illegal).
139. See Antitrust Handbook, supra note 12 (discussing
activities of franchisee associations that could be considered to violate the Sherman Act).
140. See, e.g., Plymouth Dealers Ass’n v. United States, 279 F.2d
128, 131 (9th Cir. 1960) (offering of a uniform trade-in allowance by
a dealer association was illegal per se as price fixing); United States
v. Pittsburgh Area Pontiac Dealers, Inc., 1978-2 Trade Cas. (CCH)
¶ 62,233 (W.D. Pa. 1978); 43 Fed. Reg. 10,641 (Mar. 14, 1978) (The
Department of Justice brought an antitrust action that resulted in a
consent decree against an association of Pontiac automobile dealers in the Pittsburgh area who published and/or broadcast advertisements for a given Pontiac model for a price that was developed by
“price letters” that were circulated among the dealers.). See generally
Antitrust Handbook, supra note 12, at 182.
238 - Published in Franchise Law Journal, Volume 30, Number 4, Spring 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.